Labor Department rescinds expanded 'joint employer' rule

Companies, particularly ones that engage in franchising, feared that under the joint employer doctrine, they could be held liable for all manner of violations at workplaces they didn't directly oversee. (AP Photo/Keith Srakocic)

The Labor Department announced Wednesday that it was rolling back an Obama administration rule that expanded the "joint employer" doctrine, the conditions for when one business can be held liable for employment and civil rights law violations at another company.

The move marks a win for business groups, which had staunchly opposed the Obama rule.

The joint employer doctrine refers to cases in which a business can be said to effectively control the workplace policies of another company, such as when a company subcontracts to another business. Until 2015, the department said the doctrine applied only to cases in which the company had "direct control" over the other's workplace. In 2015, the department under then-Labor Secretary Tom Perez changed the standard to the much more ambiguous "indirect control." Companies, particularly ones that engage in franchising, feared they could be held liable for all manner of violations at workplaces they didn't directly oversee.

In a terse statement Wednesday morning, the department said it was returning to the pre-Obama direct control standard. "U.S. Secretary of Labor Alexander Acosta today announced the withdrawal of the U.S. Department of Labor's 2015 and 2016 informal guidance on joint employment and independent contractors. Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department's long-standing regulations and case law."

Business and free-market groups applauded the change. "This is a positive step in the right direction. However, we will continue to work with the Department of Labor as well as Congress on the previous administration's controversial joint employer standard," said Shannon Meade, director of labor and workforce policy for the National Restaurant Association.

Despite the Labor Department's reversal, the Obama-era standard can still be applied to businesses. The National Labor Relations Board, an independent agency that serves as the government's main labor law enforcer, was the first agency to adopt the standard and has not rescinded its interpretation. President Trump has yet to pick nominees for the five-member board's two open seats. Business groups said they would continue to push Congress to write the direct control standard into law.

"While uncertainty surrounding the new joint employer standard has made it harder for America's 733,000 franchise owners to grow and create new jobs, we are pleased the DOL is taking first steps to undo this costly regulation created by the previous administration. That being said, we urge Congress to now recognize the uncertainty and unreasonable costs the NLRB's decision has placed on franchise owners and take action to find a true permanent solution," said Matt Haller, spokesman for the International Franchise Association.